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Monday, September 10, 2012

Koch Industries, Inc. is a firm whose foundation found itself building oil refineries in Stalinist Russia - for the state, of course. In fact, Koch industries has a record of raping state industries across the globe, with some of its most Lucrative contracts in Yugoslavia (ship manufactories), Venezuela (natural gas) and the US (oil fields on government owned land). Even when it comes to the US, in the face of what may be the strongest legal structure in the world, Koch Industries built its 1990s wealth expansion on oil fraud to the federal government. (See Yasha Levine's excellent article about their reliance on corporate welfare).

How surprising, then, that Charles Koch has written an article which all but demands the liquidation of Koch Industries - utilizing free-market mythology, he claims that we'll all be freer if firms enjoying corporate welfare go out of business. This is the same mythology that allows such cognitive dissonance as the claim that firms enjoying corporate welfare cannot compete globally. If anything, as Charles well knows, any kind of subsidy is correlated with an ability to compete more effectively - as Koch rightly argues later.

"Because they have the advantage of an uneven playing field, crony businesses can drive their legitimate competitors out of business. But in the longer run, they are unsustainable and unable to compete internationally (unless, of course, the government handouts are big enough). At least the Solyndra boondoggle ended when it went out of business." - Charles Koch, "Corporate Cronyism Harms America" WSJ

Cheer up, Charlie: corporate handouts will keep your company afloat to rival the best of them out there. It's not like Brazil was just fighting US subsidies to domestic agriculture ahead of their free trade agreement, right? The singular caveat "unless handouts are big enough" rings on hollow ears - what, is he demanding greater subsidies, or is he quietly admitting that subsidies are a far more pervasive fixture of our economy, with Koch Industries being a minor player? If so, and in the context of Koch holdings that are entirely reliant on government handouts, this is an indication that the government is a central player in any prosperous economy.

Of course, this is the case. Nonetheless, Koch falsely claims that "economic freedom" is what the alternative is, whatever that means. If government regulation and subsidies are the difference, as Koch strongly infers throughout, then not only are nations like Somalia freer - but the preferable model of governance. Even compromises like the liberalized economies in India and China are examples where capital has flowed to economies which offer markets "freer" in this way than than the US's.

And these are regimes which routinely squash peasants for corporate interests - literally and figuratively. See, their system of capital hasn't quite kicked all of their landholding farmers off of their farms yet. And their civil-social structures have had their own challenges - routinely held back by forces that sometimes employed the same market-worship rhetoric congealed in Koch's remarks. The regulatory race to the bottom (one example is discussed in this Real News segment with Bill Black) creates the dismal state of regulation that allows firms to pollute the air in China with toxic clouds, and diverts the clean water even whilst the local population is only allowed the water poisoned by the Coca-Cola Co's local operations.

To be fair, these firms rely on government subsidies. If they weren't provided, these firms would refuse to produce their goods there. And this is the root of the problem: the disparity in regulation, labor and taxation conditions incentivize a business model which threatens to leave nations where workers enjoy a significant portion of their input, where externalities such as poisoned public goods like water and air go unregulated. This is what you get when you prefer centrally manged economic entities to those built and maintained by democratic or social institutions. This is the competition model of global capital markets.

Koch routinely ignores this bottom line. He claims that "[t]he role of business is to provide products and services that make people's lives better-while using fewer resources-and to act lawfully and with integrity." Please. The role is to provide for the expansion of return on investment - and if resources are wasted, so be it, so long as the cost is low enough. Moreover, the role of business is to make people's lives more dependent on your firm, service or product, regardless of whether "people would ordinarily buy" them (an aspersion he wrongly casts exclusively on government-backed firms).

This inability to link the process of incentives across market ideals show just what a failure this interpretation of capitalist markets really is. If we are to take him seriously, and give grace to his misrepresentation of profit-seeking as "resource saving," we should still conclude that investment in production is only valid in the context of firms owned by nations or firms too week to protect their capital assets from external acquisition; building one's own wealth, as proven by the history of Koch industries, is out of the question.

But I'll give him something, and I think its only fair. He points something out I've been describing for years:

"When currying favor with Washington is seen as a much easier way to make money, businesses inevitably begin to compete with rivals in securing government largess, rather than in winning customers." -- Charles Koch, "Corporate Cronyism Harms America" WSJ

Yeah, winning customers is but a portion (much like the incentive process) of the profit system, and a small one at that - financial products made solely to gain a profit far outstrip production capital in terms of market capture, and the private services industry far outstrips the public industries in terms of everything from advertisements, "courtesy calls" and profit-protecting fail-safes that consumers would gladly not purchase, encounter or receive.

But back to the scraps C. Koch deserves: he's right that government lobbying serves as a disincentive for consumer-geared production. I've been saying this for a while now. He even admits that "some" government policies help Koch Industries - and Koch, a slave to the market - is obligated to accept them. But by golly, he wouldn't do it if he had the reigns of government power (well, besides his lobbying efforts, but that's just a part of competition).

And you can be sure he'd be disabused of government subsidies if he were able to reorganize those government handouts. It's not like profit would be a factor, right? The private profit of the market doesn't influence their goals in managing state firms. And of course, we can trust these industries after all to regulate themselves - I'm sure that power purchasable in the free market is likely to be far more democratic than power split between executive, legislative and judicial branches of an organization reliant on an electorate for legitimacy and tax revenue.

The real issue of liberty is the disproportionate power held by possession of capital assets. This is succinctly seen in national examples, but is also evident in the spurious claim about consumer-driven industry. As I have shown, consumers are hardly the dominant force in the determination of investment dollars - and why should they be, when so much wealth and technology comes from the government, either directly or in the form of subsidies? Wherever this kind of social control over the markets is removed, you get externalities that are worse than any "uncompetitive market" in the US, India and China being great examples of this.

The article is rife with inconsistencies, rhetoric and idealistic notions. It repeats just about every argument used to justify the expansion of private power and the centralization of economic power in the Western canon. Worst of all, it does nothing to peel back the political mysticism accumulated in the Democrat/Republican joint narrative. The partisan character of his real-world examples are laughably microcosmic: only too typically, he attacks such Democratic Party idols as solar power and low-income housing. Charles Koch may indeed be pained by corporate welfare, though it built his empire. But nothing in his editorial indicates that the issue is anything more than a tool for his own petty, partisan political posturing.